Morgan Stanley Cuts EU Growth Forecast

Morgan Stanley has downgraded its euro zone economic growth forecast—despite the interest rate cuts and bond-buying program announced by the European Central Bank last week.

The American banking giant now expects GDP growth to average 0.8 percent this year across the 18 countries that use the euro, down from the 1.0 percent previously forecast. Growth next year is seen at 1.2 percent next year, down from 1.5 percent.

“Despite the ECB policy action, we are forced to revise down our cautious growth forecasts again. Not only did the recovery stall in the second quarter, but there have also been no clear signs of a reacceleration in actual economic activity yet,” said economists led by Elga Bartsch in a research note published on Sunday.

Growth in the euro zone remained at 0.2 percent in the second quarter, disappointing economists and politicians who had hoped for stronger economic acceleration.

Germany, the euro zone’s biggest economy, disappointed in particular, posting a 0.2 percent contraction in growth. The zone’s second- and third-biggest economies of France and Italy reported zero growth and a 0.2 percent contraction respectively.

With low growth and deflation risks in mind, ECB President Mario Draghi announced a triple-rate cut last Thursday, along with purchases of both covered bonds and asset-backed securities (ABS)—a sort of private-sector version of the quantitative easing (QE) used by the U.S. Federal Reserve.

via CNBC

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